Rexon Company leases non-specialized equipment to Ten-Care Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 8 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. 2. The cost of the equipment is $500,000. The equipment has an estimated life of 8 years and has a zero estimated value at the end of that time. 3. The equipment has a fair value of $500,000. 4. Ten-Care agrees to pay all executory costs directly to a third party. 5. The lease contains no renewal or bargain purchase option. 6. The interest rate implicit in the lease is 14%. 7. The initial direct costs are insignificant and assumed to be zero. 8. It is probable that Rexon will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. Required: 1. Next Level Assuming that the lease is a sales-type lease from Rexon’s point of view, calculate the amount of the equal rental receipts. 2. Prepare a table summarizing the lease receipts and interest income earned by Rexon. 3. Prepare journal entries for Rexon for the years 2019 and 2020.
Rexon Company leases non-specialized equipment to Ten-Care Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 8 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. 2. The cost of the equipment is $500,000. The equipment has an estimated life of 8 years and has a zero estimated value at the end of that time. 3. The equipment has a fair value of $500,000. 4. Ten-Care agrees to pay all executory costs directly to a third party. 5. The lease contains no renewal or bargain purchase option. 6. The interest rate implicit in the lease is 14%. 7. The initial direct costs are insignificant and assumed to be zero. 8. It is probable that Rexon will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. Required: 1. Next Level Assuming that the lease is a sales-type lease from Rexon’s point of view, calculate the amount of the equal rental receipts. 2. Prepare a table summarizing the lease receipts and interest income earned by Rexon. 3. Prepare journal entries for Rexon for the years 2019 and 2020.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter17: Advanced Issues In Revenue Recognition
Section: Chapter Questions
Problem 6C: On October 1, 2019, Grahams WeedFeed Inc. signs a contract to maintain the grounds for BigData Corp....
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Rexon Company leases non-specialized equipment to Ten-Care Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows:
1. | The lease term is 8 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. |
2. | The cost of the equipment is $500,000. The equipment has an estimated life of 8 years and has a zero estimated value at the end of that time. |
3. | The equipment has a fair value of $500,000. |
4. | Ten-Care agrees to pay all executory costs directly to a third party. |
5. | The lease contains no renewal or bargain purchase option. |
6. | The interest rate implicit in the lease is 14%. |
7. | The initial direct costs are insignificant and assumed to be zero. |
8. | It is probable that Rexon will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. |
Required:
1. | Next Level Assuming that the lease is a sales-type lease from Rexon’s point of view, calculate the amount of the equal rental receipts. |
2. | Prepare a table summarizing the lease receipts and interest income earned by Rexon. |
3. | Prepare |
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